US Postal Service 2007 Annual Report Download - page 25

2007 Annual Report United States Postal Service | 25
Financial Section Part II
Workhours by Function 2007 2006 2005
(Workhours in thousands)
City Delivery 462,040 468,918 471,071
Mail Processing 315,825 332,269 336,210
Customer Services & Retail 233,791 246,538 247,512
Rural Delivery 189,709 186,164 179,549
Other, including Plant, Operational
Support, and Administrative 221,636 224,840 228,911
Total Workhours 1,423,001 1,458,729 1,463,253
Collective bargaining agreements with all major postal unions expired in
November 2006. Negotiations with three of four major unions resulted
in new agreements. The American Postal Workers Union negotiated a
four-year agreement. The National Postal Mail Handlers Union agreed to a
new five-year agreement. And, the National Association of Letter Carriers
also agreed to a new five-year agreement. These agreements include
general salary increases; COLAs; and, starting in 2008, a reduction in the
Postal Service’s share of health benefit premiums. Our negotiations with
the National Rural Letter Carriers Association (NRLCA) ended without an
agreement and we have entered into the binding arbitration process.
As mentioned above, COLA base changes were included in the new agree-
ments. Our annualized COLA for 2007 was $686 per eligible employee.
APWU and NPMHU members received this COLA in 2007. The agreement
with NALC included a lump sum payment of $686 per eligible employee in
lieu of COLA.
Our nonbargaining employees receive pay increases through a pay-for-
performance program that makes meaningful distinctions in performance.
These employees do not receive automatic salary increases, nor do they
receive COLAs or locality pay.
Retirement Expense
Our employees participate in one of three retirement programs of the
U.S. government based on the starting date of their employment with the
federal government. These programs are the Civil Service Retirement
System (CSRS), the Dual CSRS/Social Security System (Dual CSRS),
and the Federal Employees Retirement System (FERS). The programs are
administered by the OPM. See Note 10, Retirement programs, in the Notes
to the Financial Statements for additional information.
The expenses of all of our retirement programs are included in compensa-
tion and benefits expense. Our retirement expenses for current employees
represented 7.2% of our total operating expenses in 2007 and 9.8% in
2006. The decrease in 2007 was mainly due to the enactment of
P.L.109-435, which suspended our CSRS retirement contribution as of
October 14, 2006.
As described in Note 2, Summary of significant accounting policies, in the
Notes to the Financial Statements, we account for our participation in the
retirement programs of the U.S. government under multiemployer plan
accounting rules, in accordance with Financial Accounting Standard Board
Statement 87, Employers’ Accounting for Pension Costs. Although the Civil
Service Retirement and Disability Fund (CSRDF) is a single fund and does
not maintain separate accounts for individual agencies, the following table
provides OPM’s estimation of the funding status of the CSRS and FERS
programs for Postal Service participants as of September 30, 2006. This is
the most recent data provided by OPM.
Present Value Analysis of Retirement
Programs as Calculated by OPM
(9/30/06 latest data available) CSRS FERS Total
(Dollars in billions)
Present Value of Benefits $ 193.7 $ 86.6 $ 280.3
Present Value of Contributions * 3.2 37.3 40.5
Current Fund Balance 207.6 58.0 265.6
Surplus $ 17.1 $ 8.7 $ 25.8
Transferred to PSRHBF in 2007 (17.1) - (17.1)
Adjusted Surplus $ - $ 8.7 $ 8.7
* Expected employer and employee contributions
Health Benefits
We participate in the Federal Employees Health Benefits Program (FEHBP),
which is administered by OPM. We account for our employee and retiree
health benefit costs as an expense in the period our contribution is due and
payable to FEHBP using multiemployer plan accounting rules in accordance
with Financial Accounting Standards Board Statement 106 (FAS 106),
Employers’ Accounting for Postretirement Benefits Other Than Pensions.
The drivers of our active employee health care costs are the number of
employees electing coverage and the premium costs of the plans they select.
In 2007, health benefit expenses for active employees were $5,401 million,
an increase of $56 million over 2006. This was 6.7% of our total operating
expenses. The 2006 expense of $5,345 million was 7.5% of our total
operating expenses, and increased by $245 million, or 4.8%, over 2005.
Premiums for each plan participating in FEHBP are determined annually
by OPM. OPM announced average premium increases effective in January
2007 were 1.8%, 6.6% in January 2006, and 7.9% in January 2005. In
September 2007, OPM announced an average premium increase of 2.0%
for January 2008. The low level of premium increases in 2007 and those
announced for 2008 are the result of lower plan costs, and the application
of plan reserves to lower premiums.
Retiree Health Benefits
Eligible postal employees, those with at least five consecutive years
participation in the FEHBP immediately preceding retirement, are entitled
to continue to participate in FEHBP postretirement. As outlined in FAS
106, the amount we pay into the PSRHBF, plus our portion of the current
premium expense is recognized as an expense when due. See Note 4,
Postal Accountability and Enhancement Act, Public Law 109-435
(P.L.109-435) and Note 9, Health benefit programs, in Notes to the
Financial Statements, for further discussion of this accounting treatment.